GBP

Sterling is largely unchanged against the dollar and euro in early trading, showing little reaction to the growing threat that Prime Minister Johnson could face a confidence vote as earlier as next week. Yesterday, MP John Stevenson called for Johnson to put himself forward for a vote of confidence, to “draw a line” under the “partygate scandal“ and ex-cabinet minister Andrea Leadsom criticised him for “unacceptable failings of leadership”. Compounding the pressure on the Prime Minister, Lord Gieidt, the independent advisor on minister’s interest said he may have broken the ministerial code when he was fined by the Police. Ministers who breach the code are normally expected to resign. Mortgage lender Nationwide’s monthly survey released this morning showed house prices rising by 0.9% in May after a 0.4% rise in April, marking a 10th consecutive month of gains. Nationwide said the strength of the housing market had been surprising, fuelled by demand outstripping the supply of homes coming to the market and warned that growth was likely to cool in the months ahead.

EUR

Despite data showing inflation soaring to a record high in May, the euro has pulled back from its recent highs against the dollar. The data released yesterday, showed inflation hitting a record high of 8.1% in May up from 7.4% in April adding to the case for the European Central Bank to be more aggressive in their upcoming rate hike cycle. The ECB has penciled in gradual interest rate increases in July and September but, after Tuesday’s data, markets and at least one ECB rate-setter doubt that hikes worth 25 basis points each will be enough to tame fast price growth. Peter Kazimir, governor of Slovakia’s central bank told Reuters that he was open to a 50-basis point hike in July and a further 0.5% hike in September. A speech by ECB president Christine Lagarde later today will be closely observed by traders for any repeat of her recent “hawkish comments”.

USD

The dollar has gained some benefit from a cautious market mood in early trading. The dollar index, which measures the greenback against six major rivals managed to snap a three-day losing streak buoyed by a rise in the benchmark 10-year treasury bond yield. The U.S. Federal Reserve begins shrinking asset holdings built up during the pandemic today ahead of what is expected to be a 50-basis point rate hike at this month’s policy meeting. Speaking during an interview with MarketWatch yesterday, Atlanta Fed President Raphael Bosic said he was “fully comfortable” with continuing to hike rates higher if inflation did not move down significantly. St. Louis Federal Reserve President James Bullard and New York Fed President John Williams are due to speak on Wednesday and will be watched for clues for their outlook on future policy.

Economic Calendar
11.00 EUR ECB’s President Lagarde speech
14.00 USD ISM Manufacturing PMI
15.30 USD Fed’s Williams speech
17.00 USD Fed’s Bullard speech